SEOUL, January 09 (AJP) - The Bank of Korea is widely expected to keep its benchmark interest rate unchanged in the early months of 2026, as policy room remains constrained by persistent currency weakness, elevated housing prices and uncertainty over the durability of growth driven by an unprecedented chip boom.
The central bank will hold its first rate-setting meeting of the year on Jan. 15, launching its annual cycle of eight policy reviews. Since reducing the number of monetary policy meetings from 12 to eight in 2017, the BOK has adopted longer intervals to allow for more comprehensive assessments of economic conditions.
The benchmark rate has been on hold since May 2025, when the BOK cut it to 2.50 percent. Any additional easing would risk widening the interest-rate gap with the U.S. federal funds rate, currently in the 3.5–3.75 percent range.
A wider differential typically puts downward pressure on the won as capital flows toward higher-yielding dollar assets. The policy calculus has grown more complex following the Bank of Japan’s recent move away from its long-standing zero-interest-rate stance, a shift that could further accelerate capital outflows from South Korea.
The BOK’s maneuvering room is constrained both externally and internally. Domestically, the monetary policy board has historically favored caution during the final months of a governor’s term. Rhee Chang-yong’s four-year term ends in April, and it remains unclear whether he will be reappointed.
Household debt remains another major limiting factor. As of the third quarter of 2025, household liabilities stood at 1,968 trillion won ($1.35 trillion), with more than 1,000 trillion won tied to real estate through mortgages and jeonse loans — a unique local system in which tenants provide large lump-sum deposits. A rate hike under these conditions could sharply strain debt-servicing capacity and risk destabilizing the property market.
Against this backdrop, expectations for a hold are overwhelming. A survey conducted by Aju Business Daily on Thursday showed all 12 bond and macroeconomic strategists polled at major brokerages forecasting that the BOK will keep rates unchanged in January. While views diverged on the timing of any subsequent move, respondents broadly agreed that the status quo would persist at least through the first half of the year.
“With corporations reporting robust earnings, there is little immediate pressure for further rate cuts, while it is also unclear whether a hike would meaningfully stabilize either housing prices or the exchange rate,” said Park Sang-hyun, a researcher at iM Securities.
Cho Yong-gu of Shinyoung Securities echoed that view, noting that although growth momentum has remained resilient since November, volatility in the won and persistent overheating in the Seoul metropolitan housing market argue for policy caution.
Analysts say future decisions will hinge largely on upcoming growth data.
“If strong growth momentum carries through the second quarter, rates could remain on hold or even edge higher toward year-end,” said Woo Hye-young of LS Securities. “But signs of a slowdown in the second half would revive the case for renewed easing.”
The housing market remains a critical wildcard.
“Home prices, particularly in the metropolitan area, are likely to continue rising this year,” said Paik Yoon-min of Kyobo Securities, adding that a clear cooling of property prices would be a prerequisite for any shift in monetary stance.
For now, neither the currency nor real estate shows signs of stabilizing.
The won stood at 1,458 per dollar as of 3:30 p.m. Friday, down 5 won on the day. Despite foreign-exchange authorities having spent more than $2.6 billion in reserves on market intervention, the impact has been limited.
Seoul apartment prices, meanwhile, climbed 8.71 percent in 2025. With household lending at commercial banks continuing to rise in early January, upward pressure on asset prices appears far from easing.
Copyright ⓒ Aju Press All rights reserved.